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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Suppose a city is hit by a tornado that destroys 25 percent of the housing in the area. Would you expect the total expenditure on housing after the tornado to be greater than, less than, or equal to what it was before the tornado? Explain your answer.

To determine

Compare the total expenditure on housing after the tornado and before the tornado.

Explanation

The comparison between the total expenditure on housing after the tornado and before the tornado indicates the price elasticity of demand for housing. The price elasticity measures the percentage change in quantity demanded to the percentage change in price. Therefore, it has three possible results. They are listed below:

  • If the % change in quantity demanded is greater than the % change in price, then the total expenditure on housing after the tornado is less than the total expenditure on housing before the tornado...

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